The fiscal storm that buffeted New York's Metropolitan Transportation Authority for months has abated somewhat after lawmakers finally came up with new revenue streams for the stressed agency, but the forecast is still cloudy.
While legislation passed last week provides for a new payroll tax and mandates other fees to fund the MTA's needs, the authority still must grapple with a huge debt burden, escalating debt service and pension obligations, and still-unfunded capital projects for its aging subway system. The recession also has slashed its share of real estate transfer taxes.
Under the new law, the position of chairman and chief executive officer have been combined. Executive director and CEO Elliot Sander announced his resignation last week, effective May 22. The law also cut short the term of chairman Dale Hemmerdinger to 30 days.
The MTA board will hold a special meeting today to vote on fare and toll increases that are lower than those it passed in March - before the bailout from Albany - as it struggled to close a $1.2 billion budget gap that has since grown by $621 million.
Before receiving assistance, the MTA also voted to slash service and raise fares and tolls to yield an additional 23%. The agency is now expected to approve fare and toll increases to yield an additional 10% and restore the cut services.
The new payroll tax is expected to bring in about $1.5 billion annually and provide debt service on $6.8 billion of bonds, according to Austin Shafran, spokesman for Senate Majority Leader Malcolm Smith, D-Queens.
The law also added a menu of motor vehicle-related fee increases that are expected to fund roughly $250 million of the authority's operating expenses.
The law imposes a 0.34% payroll tax in New York City as well as Nassau, Suffolk, Westchester, and Rockland counties, and a 0.25% payroll tax in Dutchess, Orange, and Putnam counties.
Those monies will flow into the Mobility Tax Trust Account, which is one of two accounts in the "MTA financial assistance fund," which the law created. Those funds must be used for debt service and capital projects before they can be used for operating expenses.
That money is then transferred by the state comptroller, subject to appropriation, into the "MTA finance fund," which the law directed the MTA to create. The MTA controls the finance fund, and it is from there that it pays debt service. The law appropriated $1.48 billion to be transferred into the finance fund in the current state fiscal year and $1.56 billion to be transferred in fiscal 2011.
The stated intent of the law is that the projected revenue from the payroll tax will be appropriated in the state budget each fiscal year.
Shafran said the payroll taxes are expected to fund $400 million of debt service annually. But that amount isn't in the legislation - rather, it is an estimate of what the MTA can afford to use as debt service. The agency estimates debt service will rise to $1.91 billion from $1.47 billion in the current year.
"You can't direct them through legislation to use a specified amount of money for that," Shafran said. But "you can provide a mechanism for them to use $400 million for that."
The law also doesn't specify whether the funds will be used to create a new credit or whether they will bolster the MTA's existing credits.
Spokesman Kevin Ortiz said in an e-mail that the authority couldn't comment on the route the money would take from the payroll tax to bondholders.
"At this point, all we can say is that the mechanics of paying debt service will be described in detail once the bond resolution is written and submitted to" the Capital Program Review Board, Ortiz said.
Earlier MTA bailout proposals envisioned the creation of either a new bond market credit or a new issuing authority.
In 2007, New York City Mayor Michael Bloomberg proposed creating a public authority that would have sold $30.93 billion of bonds to finance transportation projects, including $13.68 billion for the MTA, backed by a combination of congestion-pricing fees on vehicles entering much of Manhattan and city and state funds.
A scaled-back version of that plan was proposed and then died last year that would have created a new revenue stream for the MTA from congestion pricing and would have backed $4.5 billion of bonds on a new MTA credit.
A commission headed by former MTA chairman Richard Ravitch then recommended a payroll tax that he said would have backed $30 billion of bonds from a new issuer. That proposal included new tolls on currently free bridges, a plan that had sufficient opposition in the Senate that it too died.
The MTA sells bonds on four credits: transportation revenue, Triborough Bridge and Tunnel Authority, state service contract, and dedicated tax fund.
Ortiz said the MTA wasn't ready to comment on how the new revenue would be used for bonding or whether it would create a new credit.
The MTA used to have many more credits. When faced with a projected $4.6 billion shortfall in its 2000 to 2004 capital plan, it in 2002 undertook an ambitious plan to refinance $14 billion of debt and to consolidate 13 credits into just four.
"The old credits required debt service reserve funds, the new credits did not, so it basically, with the restructuring, released debt service reserve funds," said Scott Trommer, senior managing consultant at Public Financial Management Inc. "Then with the restructuring of the debt, they lengthened the maturities relative to the useful lives of the assets. The debt service of the prior bonds were short relative to the useful lives of the maturities so they stretched them to better match those. So at the end of the day that also provided additional bonding capacity - they lowered the debt service."
The lower debt service allowed the MTA to sell more bonds for its capital projects. In 2002 the agency had $13.9 billion of debt outstanding compared to $26.82 billion today.
The state also increased the amount of dedicated real estate taxes that went to the MTA in 2005, just as the real estate bubble was becoming super inflated. Booming real estate created budget surpluses but also masked budget problems that have now come to light.
The upshot of a greater debt burden is that the increasing debt service is rising faster than inflation. Annual debt service in 2002, the year of the restructuring, was $793.1 million. The MTA projects annual debt service will rise to $2.27 billion by 2012.
The authority will propose its 2010 through 2014 capital program later this year, but its capital needs are fairly well-established. As part of the legislative process for last year's failed congestion-pricing proposal, the nation's largest transit agency created a $29.55 billion, six-year capital plan that counted on using congestion-pricing fees to back $4.5 billion of bonds, but still faced a $9.31 billion gap.
Moody's Investors Service last month put the MTA's transportation revenue bonds on watch for downgrade, stating that without legislative action, its ability to meet its needs through fare increases and service cuts would not support an A2 rating.
Moody's analyst Nicole Johnson said on Friday it was premature to comment on how the new law could affect the authority's credit quality.
Standard & Poor's and Fitch Ratings each assign A ratings and stable outlooks to the MTA's transportation revenue bonds.
"It's obviously a positive in that they're getting a new source of revenue," said Standard & Poor's analyst Laura MacDonald. Unlike Moody's, her agency hasn't taken any action on the MTA's ratings.
"We're more looking at that they are balancing their budget, not necessarily how they do it," she said
